Once the ugly duckling of commercial property, industrial property is faring better than any other sector. A triumphant final quarter of 2020 indicates that the industrial sector will see continued above-average performance in 2021. Demand remains high in logistics, largely due to the acceleration of digital transformation. Distribution warehousing and big sheds are well placed to grow even further.
Overall, it is clear that the commercial property market has suffered both feast and famine, retail and leisure operators have been blighted by significant shortfalls in rent payments over the last three quarters of 2020, however the boom in online retail has led to rapid expansion within warehousing and logistics. In addition, where the high street has struggled, some retail landlords have looked at diversifying.
It is likely that the majority of growth within the industrial sector will be seen in the parts of the UK best placed for ease of international logistics, namely in London and the south-east, where land supply is short.
Paul Welch, CEO of largemortgages.com urges commercial investors to snap up large shed space if they can find the funding, particularly property within close proximity of towns and cities, “Leasing or selling-on these commercial properties to large distributors such as Amazon is gold-dust. Big corporate giants are seeking warehouses within one or two miles of every town, including small towns.”
Influences on the Industrial Property Market in 2021
The two major factors influencing the UK and worldwide business growth in 2021 is Brexit and Covid-19, both of which require ‘blue-sky thinking’ and intense planning as businesses navigate a radically different landscape in 2021.
These changes have impacted supply and distribution infrastructure in particular – and warehouse space looks set to become premium real estate. Manufacturing and automotives will also require new space. Investment in UK manufacturers is set to increase post-Brexit to enable the UK to become more resilient. This will result in additional requirements for warehouse space to support the supply chain.
The pandemic has simply amplified real estate trends that were already well under way, and that the ‘rocket booster’ effects of the crisis, on online retail in particular, are likely to become permanent. With a strong demand and limited supply of industrial sites, rents are likely to strengthen, in particular for prime locations on urban peripheries. This means that developers are likely to see an appreciation in value and higher yields. In addition to this, the government’s ‘levelling-up’ agenda for 2021 provides incentives for development sites in the north of the UK. In addition to this, local authorities will seek to positively encourage logistics developments, due to the number of new job opportunities that it will create.
Paul Welch, CEO of largemortgageloans.com is positive that there will be winners from the pandemic, “Right now, savvy investors are looking elsewhere in commercial property to find hidden gems. More clients expressing interest in the logistics and operations arena.”
Changes in Permitted Development Rights to Rejuvenate City Centres
Another interesting change brought by changes in permitted development rights offering greater opportunity for commercial development is the ‘deregulating’ measures. In August, a new Use Class ‘ZA’ means that the demolition of vacant and residential buildings can make way for new housing. This means that planning permission will not be required and planning obligations, by way of Section 106 Agreements, will also not be required. The building to be demolished must have been built before 1 January 1990 and have been entirely vacant for at least six full months prior to the date of the application for prior approval. Historically, local Authorities throughout the UK have typically guarded against the loss of commercial sites, despite many developers having targeted them for residential redevelopment. This reflects the fact that authorities want to ensure a broad range of employment sites are available within their areas. Under Class O of the Use Classes Order, some developers have succeeded in converting vacant office buildings to residential use.
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